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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

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HM Revenue & Customs
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Schedule 3 SAYE option schemes: Requirements relating to share options: Exercise rights: Redundancy

Redundancy is one of the ‘good leaver’ terms within section 34(2) ITEPA that allows for tax relief on early exercise of options providing exercise occurs within six months of cessation for this reason. For the purposes of section 34(2), it is defined as being within the meaning of Employment Rights Act 1996 (or Employment Rights (Northern Ireland) Order 1996). This defines redundancy as follows:

”… an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to:

  • the fact that his employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed by him, or has ceased, or intends to cease, to carry on that business in the place where the employee was employed, or
  • the fact that the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where he was so employed, have ceased or diminished or are expected to cease or diminish”.

Where scheme rules provide a right of exercise for redundancy then the term must be defined in terms of the legislation. There is no scope for discretion to determine whether the cessation was for redundancy or otherwise. 

The transfer of an employing company out of the constituent group (paragraph 34(2)(d)) does not amount to ‘redundancy’ within the terms of the legislation.

The transfer of a business out of the constituent group (paragraph 34(5)(b)), where the ‘TUPE’ Regulations do not apply, may amount to redundancy within the terms of the legislation.